Speaker 1Happy Wednesday out there, Team 42. It's your skipper here, Darius Dahl, to present our Macro Minute for Wednesday, October 21st, 2026. As always, we'll start with the executive summary from today's lead-off morning note, so let's dive right in. Today, what did we learn today that will likely have the greatest impact on your portfolio? Is the SpaceX results and the Anthropic S1 filing challenged the durability and severity of the current risk-off inflation market regime? What key macro data or policy signals supported our active themes or contentious expectations? Earlier reported from Q3 earnings season and Anthropic's historic capital commitments to secure compute are supportive of our view that the U.S. is in the early innings of a corporate profit-boosting productivity boom. In Japan, the Takeichi administration's doubling down on its reflationary fiscal policy agenda will likely continue to supply upper pressure upon long-term JGB yields and upon bond yields globally. This dynamic is supportive of our play-action paths to set up the run theme, as well as our Fed-Treasury accord 2.0 theme. In the U.K., the September CPI and PPI data supported the consensus for the U.S. and the U.S. and the U.K. in the forecast of accelerating inflation. And finally, what key macro data or policy signals challenged our active themes or contentious expectations? Iran's hard-line negotiating position, which has not changed since the advent of the absurdly pro-Iran MOU in June, challenges the contentious forecast of sharply slowing inflation throughout the first half of 2027. What other key macro data or policy signals did we analyze in today's Little Morning Note? So we previewed the U.S. midterms from a campaign, finance, and spending perspective. We talked about the potential merger of SpaceX and Tesla as a leading indicator of significant redistributive policy such as wealth taxes and trust busting. Number three, SpaceX's daily disruption of service in Ukraine as a leading indicator of Paradigm E, a.k.a. major political realignment and total war. And then finally, we updated our outlook for a Bank of England monetary policy. So as always, we'll wrap up with a question from our community. This one's titled Delinquency. It says, recent coverage from Reuters regarding the $1.7 trillion U.S. auto loan market highlights growing economic stress and structural risks facing borrowers, lenders, and investors. Hello, this is obviously a concern and too many people are suffering. Are those at the top of the K and corporate balance sheets flush enough to keep the economy going despite these risks and potential contagion? In our view, that's a long bit of view of ours is that yes, those at the top of the K in terms of the households and the corporate sector are beyond flush enough to overwhelm the negative dynamism that we're seeing in the bottom part of the K from a household and small business perspective. So just a couple stats on that. If you just look at cash on U.S. household sector balance sheets, we've more than tripled since the end of 2019. So I want to say about $11 or $12 trillion. That's about 5% or 6% of total household assets. It's the highest ratio of liquidity in terms of household, highest ratio of liquidity on the household balance sheet in the history of the U.S. economy. And obviously that liquidity is heavily concentrated with, I want to say, 97%, 98% of wealth in the top half of the K. So that amount of liquidity is allowing the consumption cycle in the United States economy to become detached from income, to be detached from the interest rate cycle. And so you're seeing what is very clearly an ongoing recession in households at the bottom of the K where you look at auto loan delinquency rates, consumer credit card delinquency rates. You look at student loan delinquency rates. You look at home ownership among folks who should be buying homes, like folks around my age or below. You can very clearly see that the bottom half of the K in the United States economy has been in recession since 2022. But on an aggregate basis, it's not enough to take the GDP down on an aggregate basis. In fact, GDP is actually booming. So it's not enough to take the GDP down on an aggregate basis. When you look at nominal GDP, ex-government and exports compounding at 8.4% on a quarter-for-quarter SAR basis in the most recent quarter, which has doubled the pre-COVID trend. So this is a booming paradigm C economy. It's exactly what we forecasted at the lows of April of 2025 when everybody was freaking out about tariffs. Recall that we told you to put earmuffs on and start buying risk assets because the markets are going to leave tariff bears behind. That's exactly what's happening. And so in our opinion, we think headlines like this, albeit it is serious, it means a lot to the folks who are suffering from this, it doesn't necessarily mean much to the stock market, which it's one of our core theses and in support of our jobless recovery theme. Our jobless recovery theme is calling for, explicitly calling for the stock market to permanently detach itself from the economy, at least until we start to see the political cycle change in paradigm E. So we'll wrap it up there. Darius Stel here presenting our Macro Minute for Wednesday, October 21st, 2026. Best of luck out there today. We'll catch you back here tomorrow.
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